Chart depicting North Penn School District’s gross expenses for employee retirement costs, from 2010-11 through 2018-19, measured in tens of millions of dollars. Image courtesy of North Penn School District.
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LANSDALE >> The new North Penn school board has gotten its first look at the district’s 2018-19 budget, and one member has already coined an ominous term for part of it.

“We’re getting crunched, and there is bipartisan support. Nobody at this table likes the fact that there’s a giant doom bar on the end of this thing, eating up our budget,” said Warren. “But it’s a sunk cost. We’re dealing with it.”

“So it was really a $3 million ongoing, sustainable deficit, a structural imbalance if you will. So when you start the 2018-19 year, all else being equal, you start out with a $3 million hole,” he said.

“This isn’t a teacher problem, this isn’t an administrator problem, this isn’t a staff problem. We, the school district, don’t set the rate,” Skrocki said. “Every employee that’s eligible for a pension pays a percentage out of his or her paycheck ― 6.5 percent, 7.5 percent, or even higher percentages, for their contributions to PSERS. The employer pays a contribution, and that’s what we’re talking about here, of 33.43 percent.”

The retirement rate is expected to level off slightly, at roughly 36.3 percent, by 2022-23, but it has increased dramatically from nearly zero in 2000-01, and less than 10 percent in 2011-11, to over 30 percent now.

“In the upcoming year, the 2018-19 budget, we have increased the amount to over $40 million in the budget for retirement expenses ― $41.7 million,” said Skrocki. “To go back to 2011-11, we had roughly $6 million in the budget (for retirement expenses). So to go from $6 million to $41 million in eight short years is just incredible.”

In terms of the district budget, retirement expenses were less than three percent of the overall district budget in 2010-11, but have ballooned to roughly 16 percent of the total budget in 2018-19. Hard as it may be to believe, Skrocki told the board, recent stock market gains over the last four years have prevented those increases from even higher.

“Quite honestly, based on some projections last year, we were projecting somewhere in the neighborhood of a $12 million to $14 million (deficit) in the first draft of a budget this year, so this is actually better than we expected,” he said. “I never imagined the day I’d say I was really pleased with a $9.7 million deficit.”

Salary increases in the 2018-19 budget are estimated at roughly $3.2 million, and the district’s digital initiative calls for $1.5 million in new spending on computers and other technology next year. Costs for charter school tuitions are expected to increase by roughly $190,000, and costs for diesel fuel are estimated to jump by roughly $60,000, according to Skrocki. Staff are also recommending the board consider spending just over $1 million to replace school buses that are aging and have not seen any replacement for three years.

“We have a fleet of approximately 150 vehicles. That ranges from vans, to wheelchair buses, to small buses, to 72- and 84-seat passenger buses. No new buses have been purchased over the past two years,” Skrocki said.

The average age of the district bus fleet is “closing in on 12 years,” Skrocki said, and purchases of roughly 15 buses per year would keep the fleet age at an average of 10 years. Staff are recommending a purchase of 10 new school buses in the 2018-19 budget, and Skrocki said they would replace buses that are 15 to 20 years old, with “a couple hundred thousand miles on them — these are well-used buses, well past their useful life at this time.”

Other developments since last year mean the budget news for the district is not all bad. A technology lease for the purchase of laptops for staff will expire, eliminating a cost of $1.3 million, and each year the district receives savings of roughly $800,000 from retirement of employees, and their replacement with employees at lower salaries. Local earned income taxes, transfer taxes, and investment income are all projected to grow, totalling an estimated $1.25 million in new revenue, and growth of the district’s total real estate tax base should resume in 2018-19, after last year’s estimated growth was offset by one large property reduction.

“So last year was basically zero. This year, it’s closer to the historical average of $572,000” in new real estate income based on natural growth of the tax base, Skrocki said.

As of mid-January, several factors that will impact the budget’s bottom line are still unknown, including the district’s levels of state and federal funding. The district is normally limited by state’s Act 1 of 2006 to a tax increase at a rate set by the state, which in 2018-19 will be 2.4 percent, but the district is eligible to apply for one exception, which could generate an additional $1.7 million and lead to a total potential tax increase of 3.38 percent, if used.

Last year, the school board voted to stay within the Act 1 index, and therefore held off budget discussions until the end of that school year. The board could vote to do so again, Skrocki said, but the state Department of Education would need to be notified of the decision later this month, meaning an action would be needed at the board’s Jan. 18 meeting.

“If that’s the case, in essence we can revert to the old process, where a preliminary budget would not have to be passed until May, and a final budget in June,” Skrocki said.

Several preliminary tax scenarios have been developed by district staff, projecting the district’s deficit using various tax increase rates. No tax increase would leave the full $9.7 million deficit, while an increase of 2.4 percent at the Act 1 index would leave a $5.5 million deficit, and result in an $87 tax increase for the average district homeowner. Increasing at the 3.38 percent level, with the Act 1 exception included, would result in a $3.38 million deficit and a $123 increase for the average homeowner.

Reserve funds are available to help make up the deficit, and Skrocki outlined the amounts in each of several categories. Roughly $20.8 million is currently left in unassigned general fund reserves, an additional $16.9 million has been held by prior boards for retirement expenses — staff is recommending using $1 million of that next year — and $2.7 million has been set aside for self-funded insurance costs, adding up to roughly $41 million in various reserves.

“That’s a very healthy fund balance, and that didn’t happen by accident. That happened by prudent planning, over a long period of time,” Skrocki said.

The board’s five new members, who were sworn in last month, have said they want the board’s finance committee to consist of all nine board members, and finance committee meetings have been scheduled for Jan. 22 and Feb. 1 before a possible preliminary budget adoption at the board’s Feb. 6 meeting. From February through May the board would get updates during full and finance committee meetings, then the proposed final budget could be adopted May 17 and final adoption could take place June 21.

Several board members asked for details on specific aspects of the budget, and member John Schilling said he and other members spoke out at the time the state Legislature increased the retirement rates in the early 2000s.

“A lot of us stood up back then and said ‘You’re going to bankrupt school districts with this,’” he said.

Board President Tina Stoll said she looked forward to future discussions, and was glad to hear the news is not all bad.

“I remember you saying last year that this year in particular was of big concern to you, so it’s nice to see you have some good things to talk about tonight,” Stoll said.

The North Penn school board next meets at 7:30 p.m. on Jan. 16, and the finance committee next meets at 6:30 p.m. on Jan. 22, both at the district Educational Services Center, 401 E. Hancock St. For more information or meeting agendas and materials visit www.NPenn.org or follow @NPSD on Twitter.